What to Do With Your Investments if You’re Worried a Recession Is Coming

Quick, what is the first lesson you learned about what to do if you are ever lost in the woods? 

If you answered “STOP,” you are 100% correct. 

The exact same rule should apply to individual investors who are worried that a recession is imminent. 

The second rule is “don’t panic.” 

The worst investment decisions are often made under periods of emotional distress, e.g., after the loss of a job, the death of a loved one or as anxiety sets in that a recession could be near. 

Why You Probably Don’t Want to Recession-Proof Your Portfolio

If you believe that a recession is imminent, you might think it makes sense to allocate more funds to investment-grade bonds, since such investments tend to hold their value better than stocks during recessions. 

Alternatively, if you believe the economy will grow even faster than expected, you might try to invest more of your money in stocks. The return on stocks is typically better than bonds during periods of economic growth, which is most of the time. 

Simple, right? In principle, yes. 

But to correctly allocate your funds to prepare for a recession, you first must correctly predict the recession. This is much harder than it sounds. 

First, there is absolutely zero shortage of pundits, journalists, talking heads and others — professionals, novices and in-laws alike — who speak confidently about the direction of the economy. 

Like a stopped clock, they will be right… eventually. By that measure, a recession is always on the horizon. 

But until that time, U.S. stocks could go up another 10%, 20%, 50% or more. If the recession prediction turns out to be completely wrong, it may be another five or 10 years before the next recession. 

In that case, you could have missed out on more than doubling your investment in the stock market before the next recession arrives. 

Keep in mind that the U.S. stock market is itself one of the strongest leading indicators of a recession. 

By the time the U.S. Bureau of Economic Analysis (the government agency that “officially” declares the beginning and end of a recession in the U.S.), the stock market has probably already declined 20% or more.

But analysis shows that most people investing during a recession reallocate their investments in response to an economic downturn only after the stock market has already declined. This is frequently described as the market “pricing in” the cost of the recession or other seemingly relevant investment information. 

Even worse, because investor nerves are shaky or shattered, most of them will not re-invest in the stock market until it has already recovered. In a worst-case scenario, this investor will get reinvested just in time for… you guessed it: the next recession.

FROM THE INVESTMENT FORUM

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4 Tips for Investing During a Recession (or if You Think a Recession Is Near)

For all the challenges facing individual investors, how can someone make intelligent and responsible investment decisions in the face of so much varied, often contradictory information? Here are some tips.

1. Don’t Be Swayed by the Panic

The first step is to recognize that most of the noise surrounding you about the market is just that — noise. 

The sooner you can block it out and evaluate your personal situation objectively, the better. If this entails periodically checking in with a trusted adviser, make sure you are working with someone who can maintain their objectivity and has a fiduciary duty to put your interests ahead of themselves or their firm. 

2. Reconsider Your Risk Tolerance

Also consider the likely impact on your investments and overall net worth in the event the predictions of a recession prove correct. In other words, reconsider your risk tolerance. Can you tolerate the fluctuations in your investment accounts associated with a garden variety recession?

What about a repeat of a historical worst-case scenario? If the answer to either question is “no,” it might make sense to re-evaluate your asset allocation AND the expected rate of return associated with a more conservative allocation.

Is it worth it to you to save an additional $100, $500 or $1,000 per month to avoid the more severe losses associated with investing during a recession? 

3. Consider the Costs of Missed Opportunities

Next, consider the chance that you (and everyone around you) ends up being wrong. Can you tolerate the FOMO (fear of missing out) associated with what you could have had if you’d left well enough alone? 

Remember, that if you are a dedicated devotee of index investing vs. active management, ALL publicly available information is useless for making investment decisions. Your best bet is to ignore the hype and just keep doing what you’ve been doing. 

4. Prepare for the Worst

Work on building a good emergency fund in case of a layoff, and review your insurance policies to make sure you can afford any out-of-pocket costs associated with a major illness or accident. After that, leave everything else alone. 

But What if You Just Can’t Stomach a Hands-off Investing Approach?

If, after all these steps, the idea of leaving your investment accounts completely unchanged in the face of contradicting information sounds a little too Zen for your comfort level, consider the following strategies for mitigating the potential trade off between future returns and lowering overall portfolio risk: 

1. Consider Dividends

Stocks that pay dividends distribute money, usually quarterly, back to shareholders. Make sure you’re investing in a diversified pool of dividend-paying stocks to as to avoid falling into a “value trap.” Sometimes high dividends can be a sign that the dividend payment is too high and unsustainable relative to the underlying fundamentals of the issuing company. 

2. Look at Bonds and Other Income-Producing Investments

Suppose the stock market is projected to return 6% over the next 10 years. If you have the option of choosing a diversified portfolio of bonds or other income-producing investments, also known as fixed income, that are currently yielding 6% or more, it could make sense to opt for the diversified portfolio of fixed income. 

Such options might include high-yield bonds or bonds issued by emerging market economies. These investments will also lose value in the event of a recession but may hold up better than stocks in general. You can then evaluate the option of reallocating more to stocks if and when the bad news you were expecting comes to pass. 

3. Invest in Quality

Look for diversified portfolios of stocks that represent companies with strong balance sheets and consistent earnings. These companies should withstand market turbulence better than their weaker counterparts.

Again, keep in mind that the long-term rate of return may be more modest than the stock market in general — but without the opportunity costs associated with investment-grade bonds or cash. 

4. Think Globally

These days, “broadly diversified” generally means including international investments. Returns between U.S. and international stocks tends to be cyclical. In the meantime, allocating some of your investments overseas can help reduce the volatility associated with a portfolio invested completely in the U.S. 

A Final Word About Preparing for a Recession

The consistent theme to all of these recommendations is to consider in advance the potential outcomes associated with various scenarios: both in your personal life and across the economy in general. 

By doing so, you will be much better prepared to withstand most (if not all) of what the investment universe has to throw at you and be well on your way to a calm walk through the woods when everyone else is lost.

David Metzger is a fee-only wealth manager in Chicago. He is a certified financial planner (CFP) and a chartered financial analyst (CFA). He has taught courses on personal financial planning and investing at DePaul University in Chicago and Christian Brothers University in Memphis, Tennessee.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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Twenty Winter Hacks That Let You Keep Your House a Little Cooler

Here in north-central Iowa where I live, we recently enjoyed a severe and unseasonal November cold snap which drove the temperatures down below zero (Fahrenheit) for a couple of days. While such temperatures aren’t out of the ordinary for January and February, they were a bit of a shock to the system for November.

Thus, a big part of the last week was rediscovering how exactly to keep our home temperature as low as possible while still being comfortable at home. I keep it lower during the day when I’m alone working and low at night when we’re all sleeping, but a little higher when all of us are at home.

The reason for keeping it on the cool side is obvious – lower energy bills. Even dropping our thermostat by a degree on a cold day means that the furnace and fan kick on less frequently, and if lowering it by a degree means that it goes through one fewer heating cycle every two hours, that adds up to a surprising amount of energy savings over the course of a winter month.

Of course, you also want to be comfortable in your own home. I don’t want to sit around freezing all the time, and neither do you. The trick is to find the exact point where your house is cool but not uncomfortably so, and that exact point is different for each person. I’ve learned, for example, that my parents like to have their house much hotter in the winter than we do, and our house is certainly cooler today than the house was when I was a kid living with my parents.

My usual tactic for figuring out that temperature is to keep nudging the thermostat a little lower and a little lower until it reaches a point where I don’t quite feel comfortable, then I raise it by a degree or two. What I’ve learned over the years is that I can make that temperature dive go quite a bit lower if I take some proactive steps around the house to encourage those lower temperatures.

Here are twenty things I do at home all throughout the winter to enable things to be a few degrees cooler while still being comfortable, which translates into huge energy bill savings.

I dress warmly around the house, often in layers. As I write this, I’m wearing a pair of sweatpants and a t-shirt underneath a hooded sweatshirt and jeans, with some thick comfy socks on. I feel really comfortable and also quite warm, even though the house temperature is pretty cool.

If I start to feel overly warm, I can always just strip off the sweatshirt or knock the temperature down another degree, but while I’m working, I feel pretty good. If I were to just take off the sweatshirt or the jeans, I’d probably be fine for a while and then gradually start feeling cold, which would make me want to nudge up the temperature.

Just wear comfortable clothes in layers around the house. You can adjust situationally as needed, and it allows you to keep things just a bit cooler.

We keep the ceiling fans running on “low” in “winter mode.” By “winter mode,” I mean that the blades are running in a clockwise direction so that you don’t actually feel it blowing down on you if you’re standing right underneath it. Rather, the air is pushing upwards against the ceiling, which causes the warm air that collects at the top of the room is pushed down along the walls and mixes with the cooler air on the floor to warm the room.

You don’t need to run it on “high”; in fact, it’s less efficient that way. Just run it on “low” with the air pushing upwards. You can set the direction of the blades with a little switch on most ceiling fans.

I drink a lot of warm beverages throughout the day, particularly tea. There are two reasons for this. The obvious one is that, well, I’m ingesting warm stuff, which will make me feel warmer. A cup of hot tea on a cold day is a great way to warm yourself up.

There’s a second reason, too: it helps me stay hydrated, and when you’re hydrated, you retain water much better than when you’re dehydrated. Water retains heat fairly well, so when you drink that hot water, you’re going to stay warm for longer.

We keep blankets near every chair or couch where people might sit, so they can drape them over their legs if they want. Every room in our house has a pile of blankets available in the winter for people to cover up. We have a variety of thicknesses, a variety of sizes, a variety of cloth types – there’s something for everyone! (I’m partial to the biggest ones, because I’m tall and I like to keep my toes covered up.)

If someone happens to feel cold while others don’t, they can just grab a blanket and drape it over their laps or completely cover up with it. We’ll often do this in the evenings if we’re watching a movie as a family or playing a board game or working on a puzzle or something, because we tend to feel most cold when we’re sedentary.

We cuddle and share blankets. I really love getting huge blankets that can cover multiple people. Not only do they make it easy to wrap yourself up in a blanket on the couch like a mummy, it also makes it very easy for two people to cuddle together under a blanket, which is a fantastic way to feel warm on a cold winter night.

There are few things that will make you feel warm under a blanket faster than the warmth of another person, so if you have someone you don’t mind cuddling with, keep a big blanket around and cuddle with that person often. It’s one of the most enjoyable money savers around.

We layer blankets on the beds. In the winter, every bed in our home has several blankets on it. This enables people to easily add and remove blankets as their needs change throughout the night. Several blankets can also create a mild “weighted blanket” feel, which some people like.

These layered blankets can keep you very warm at night, which is perfect if you drop the temperature in your home a few degrees on winter nights so that the furnace isn’t running constantly.

I make a lot of hot meals at home (and bake a lot, too). During the winter, I make a lot of hot meals in our kitchen. I love making casseroles and soups and stews. I love baking things – bread and cookies and crusts and pies. It’s wonderful to do this, but particularly during the winter.

Why? When I’m cooking something in the kitchen, the excess heat is flooding out into the kitchen, keeping the temperature higher in the house without the furnace kicking on. Now, our oven isn’t nearly as efficient as the furnace for heating the house, but it’s a far better proposition than cooking in the summer, when a hot kitchen works against the air conditioning. Rather, the excess heat helps you a little bit, so it’s even more cost effective to cook at home during the winter than during the summer.

There’s also the additional effect of eating warm foods. If you eat something warm, you’re going to feel warmer and for good reason – your body temperature is going to go up a little bit. That helps you feel nice and toasty even when the house is cool.

We cook lots of things in the slow cooker. I particularly like using the slow cooker during the winter, for a few reasons. As noted above, it heats up the house, and eating warm foods makes you feel warm.

However, a slow cooker adds a wonderful additional effect that isn’t a guarantee with other methods of cooking: it’s going to add moisture to the house.

Most recipes that you make in a slow cooker have a significant water content. In fact, we often cook soups and stews in the slow cooker, which means a lot of liquid. Cooking things with a lot of liquid in them adds humidity to the air, and during the winter when the furnace or when radiators are running, it’s easy for the air to get very dry. A bit of humidity helps the air hold heat a little better and gradually adding a little moisture to the air throughout the day raises that humidity.

Let’s talk a little bit more about humidity…

I leave water sitting out for a few hours, particularly if it’s hot water. If I heat up water for any reason, I won’t just dump it down the drain. Rather, I leave it sitting out for a few hours, letting the warmth from that water migrate out into our house and letting the water evaporate a little, adding moisture to the house, too.

If I make pasta, I’ll save the water when I drain it. If I make tea and have some extra water, I let it sit out in a bowl. If I cook something via sous vide, I let the basin of hot water sit out for several hours, spreading the heat and evaporating. If I draw a hot bath, I’ll let the water sit in the tub for a few hours until it’s down to room temperature. If I have a sink full of hot water for dishes, I let it sit until it’s at room temperature. Let that heat go into our house rather than down the drain!

Sometimes, I’ll even just put normal containers of water near the hot air vents. One great additional trick if you have some extra water is to sit it in a bowl or something near a hot air vent in your home. This won’t directly heat your home, but what it will do is encourage evaporation as the air coming out of your vent will be quite dry, and having sitting water there will cause it to evaporate at a relatively high rate, adding moisture to the air. Again, water holds heat well, so adding a bit of moisture to the dry air in your home is a great way to make the air in your home hold heat better.

I’ll usually do this with a glass bowl. I’ll just sit it near a vent for a while, let some of it evaporate, and eventually dump the rest. Sometimes our dogs will drink from the bowl rather than their dog dish, so this will convince me to dump it a little sooner.

I shower with the bathroom door open and a fan outside the door running. This is another heat and humidity trick. During other seasons, I just run the vent fan in our bathroom when I’m taking a shower as I want that heat and humidity out of the house. In the winter, though, I want to keep that heat and humidity in the house, but I don’t want it concentrated in the bathroom where it can eventually damage the paint.

My solution? I usually shower with the bathroom door open and run a fan in our bedroom (the bathroom where I shower is attached to our bedroom) while not running the vent fan. That way, the hot, moist air spreads out into other areas of the house rather than just blowing out of the vent.

Also, the last few minutes of my shower are as cold as I can stand it. This is a trick I learned that actually helps me keep warm, even though it seems really counterintuitive.

During a shower, I’ll wash myself with nice warm water, but when I’m rinsing all the soap and shampoo off, I turn the temperature down as cold as I can stand it, for perhaps the last three minutes of the shower.

Why? Believe it or not, cold water actually causes your core temperature to rise while your outer surface cools off. After the shower and a bit of warming up as you get dressed, this elevated core temperature will actually leave you feeling quite a bit warmer about 15-30 minutes after the shower than taking a warm shower will leave you. Don’t believe me? Give it a try!

(The reverse is true – in the summer, you should take a warm shower if you want to feel cool after your shower. Start off with cold water to cool off, but then switch to warm water during the rest of the shower.)

I heat up “rice bags” and throw them under the sheets and blankets a few minutes before I go to bed. These are just small cloth bags of dry rice sewn shut, nothing special. I’ll put these in the microwave for about 3 minutes before I go upstairs to bed, toss them under the blankets, and then go about my pre-bedtime routine, which takes about ten minutes. When I climb into bed, it’s already really warm under the blanket, as the heat has spread but hasn’t escaped.

In the morning, when I make the bed, I grab the little rice bags and put them downstairs near the microwave, so they can be easily microwaved again.

This makes it much nicer to get into a cozy warm bed at night, and it doesn’t risk spillage as a hot water bottle might do.

I heat up my clothing with those same little “rice bags.” I also use those exact same rice bags in the pockets of my clothes, particularly when I’m about to go outside, but occasionally on a really chilly day around the house. I’ll just microwave one for a couple of minutes (not as long as the ones for bedtime, as I actually want to be able to touch these) and slip them in a coat pocket or in the pocket of a hooded sweatshirt.

This not only heats up the item I’m wearing, but also gives me something warm to put my hands on when I’m out and about. It doesn’t last forever, but it lasts for a surprisingly long time.

We keep windows uncovered when sun is shining through them, but cover them the rest of the time. When direct sunlight is shining on the windows in our home, we’ll open up the curtains or blinds and let that sunlight stream in through the windows, naturally heating the interior of our home. The heat of the sunshine exceeds the loss of insulation from keeping the window coverings closed. I particularly like sitting for a while in the sunshine on days when it shines in the window, as it makes me feel warm.

When direct sunlight isn’t shining on the windows, we do the opposite and keep them closed because the insulation effect of the window coverings exceeds the nonexistent warmth of sunlight.

I keep some warm house slippers around and keep them on my feet if it’s chilly. I’m normally barefoot around my house in the spring, summer, and fall, but in the winter, having bare feet can make me feel really cold. My first line of defense against this is a nice pair of slippers – I currently wear these and love them.

These do a great job of keeping my feet nice and toasty during the day while I’m working. But I also do something else…

I also wear socks on really cold days, sometimes even in layers. If I still feel cold on a really cold day with my slippers, I’ll go put on at least one pair of socks. Again, I don’t normally wear them around the house except for when it’s cold, but when it’s really chilly, they help a ton.

I tend to like wearing wool socks. On cold days, I’ll wear wool socks on top of athletic socks, as two layers of wool socks or athletic socks on top of wool socks feel really tight on my feet.

I go on a lot of walks, even when it’s really cold. A nice long brisk walk makes me feel a lot warmer, and that warmth seems to continue for a surprising amount of time after I get home. Walking elevates my core temperature and the temperature stays elevated for a while, leaving me feeling warm all over.

Thus, once or twice a day, even on really cold days, I’ll bundle up and go on a fast walk. My goal is to feel slightly sweaty on my innermost layer, such that I feel like changing clothes or even taking a shower when I get back to the house. If I do this along with the shower technique described above, I’ll feel warmer all day long.

I keep a towel to stuff along the bottom of all exterior doors, even those with weatherstripping. Like it or not, cold air does seep in a little around the edges of doors, especially when the wind blows against them. Although our doors are pretty well lined, it’s still beneficial to add a bit of extra protection on the coldest and windiest days.

Stuffing a towel along the bottom of an exterior door reduces a lot of that cold airflow. This is particularly important because the cold drafts it blocks flow in along the floor, where your feet are, and this can make you feel doubly cold.

We burn candles. We’re not big candle people, but we sometimes receive them as gifts. Candles are universally saved for the winter, where we’ll often burn them in the evenings. Candles contribute a surprising amount of warmth to a room, often enough to make a room feel noticeably more comfortable.

Dig out your candles and light them in the room where you are, ideally fairly close to a thermostat so that the thermostat continues to register the current temperature of the room you’re in and the furnace doesn’t needlessly kick on.

You don’t need to keep your furnace on full blast all winter long. Drop the temperature a few degrees and use these strategies instead to save yourself quite a lot of money.

Good luck!

The post Twenty Winter Hacks That Let You Keep Your House a Little Cooler appeared first on The Simple Dollar.

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European Christmas market breaks are cheaper than last year – but which is the best value?

European Christmas market breaks are cheaper than last year – but which is the best value?

A two-night break to see a European Christmas market has gone down in price in most cities

Stephen Little Fri, 11/15/2019 - 15:53

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There is good news for travellers looking for a weekend European Christmas shopping getaway this year.

Competitive local pricing and a stronger pound means the price of a stay in most European cities has fallen compared to this time last year, according to the Post Office.

Its research shows that out of the 13 European cities surveyed, a two-night break to see the Christmas markets had gone down in price in 10 of them.

Riga in Latvia is the bargain choice for a European Christmas shopping trip in this year’s Post Office Travel Money Christmas Markets Barometer. 

The research compared two-night package trips, including accommodation, flights, meals, drinks, transport and even festive fare like mulled wine and gingerbread.

Riga was the cheapest city for the third year in a row with a total cost of £497 - 1.2% cheaper than a year ago. 

Two nights’ accommodation and flight or Eurostar proved to be cheap at £326, while return bus/train transfers to the airport were around £4.

Food and drink was also good value, with four cups of coffee costing £10.50, while two three-course meals for two people cost £139.

Zagreb, the capital of Croatia, took this year’s runner-up spot, costing just £523 for two.

Tallinn, the capital of Estonia, took third spot with a cost of £531, which is 13% lower than last year. 

While seating and drinking was cheapest in Prague (£613), the higher cost of a two-night flight and accommodation package meant that it has fallen from second to fifth place.  

Nick Boden, head of Post Office Travel Money, says: “Our research found that Prague was one of only three cities where package prices have risen.  Big falls of over 25% in many other cities suggest there is more flight and hotel availability this year, resulting in strong competition for business and lower prices.  This makes it a great time for holidaymakers to plan bargain Christmas Markets trips.”

In Western Europe, Lille was the best-value break, with cost of £575 for two people. It is also closest to the UK with an 82-minute train journey from London. 

Scandinavian cities have seen the biggest price falls. Prices were down 21% in Stockholm (£625) and 26.4% in Copenhagen (£655). 

Bargains galore

Post Office Travel Money compared shop prices for 10 Christmas gift items in the 13 cities and to London. 

It found that UK visitors can make some big savings on a variety of gifts in most cities, including designer fashions, beauty products, chocolates and high-tech goods. 

Six cities scored totals that were lower than in London, with the biggest savings to be made in French cities.  The overall cost of the 10 items was 6.6% lower in Strasbourg and 5.6% less in Lille than in London.  Prices were also 4.8% cheaper in Prague and cost 3.5 per cent less in Munich than in London, while they were marginally lower in both Vienna and Berlin.

The Post Office found that Lindt chocolates were lower in Copenhagen, Krakow, Prague and Riga than in London. Meanwhile, a 200g Lindor gift box which retailed at £4.99 in London, cost as little as £3.04 in Copenhagen.

Clinique lipstick was £17.50 in Riga compared with £21.50 in London, while you can get as much as 55% off a 50ml bottle of Calvin Klein CK One fragrance in Vienna (£13.15 compared with £29.50 in London).

Savvy shoppers looking to pick up a tech bargain can get 28% off an Apple iPad Mini in Lille (£288 compared to £399 in London) or 12% on a GoPro Hero 7 (silver) in Strasbourg (£175.38 compared to £199.99 in London). 

Mr Boden says: “The price differences revealed by our latest research show how important it is for people planning trips to check prices and allow for all the costs they may incur before choosing a city.  Holiday homework before booking could save them hundreds of pounds, especially if they plan to go shopping for presents.”

Best value European Christmas market breaks

Riga, Latvia £496.64

Zagrab, Croatia, £522.65

Tallinn, Estonia, £530.90

France, Lille, £575.38

Czech Republic, Prague, £612.81

Poland, Krakow, £616.04

Budapest, Hungary, £624.07

Stockholm, Sweden, £625.16

Berlin, Germany, £647.28

Strasbourg, France, £683.36

Munich, Germany, £726.62

Vienna, Austria, £776.74

 

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